Key Highlights
- Broadcom’s fiscal Q3 earnings release is scheduled for Wednesday after market close, with analyst consensus calling for EPS of $3.22 (up 90%) and revenue near $29.4 billion.
- Despite projections of approximately 70% earnings expansion for both this year and next, AVGO shares have declined 30% from their all-time peak reached in June.
- The company’s AI semiconductor division is anticipated to deliver $16 billion in Q3 sales, representing a year-over-year surge exceeding 200%.
- Marvell secured a partnership with Google to develop AI infrastructure chips, potentially limiting Broadcom’s future revenue opportunities with its largest client.
- Recent financial disclosures indicate Broadcom may face lease payment responsibilities totaling $29 billion should data center tenants fail to meet their obligations.
As Broadcom (AVGO) prepares to unveil its fiscal third-quarter [[LINK_START_1]]earnings[[LINK_END_1]] results this Wednesday, the semiconductor giant faces heightened investor scrutiny. Trading at $[price], shares have tumbled 30% from their June peak, creating a disconnect with analyst forecasts calling for roughly 70% profit growth both this year and the following year.
Market expectations point to quarterly revenue reaching approximately $29.4 billionāan 85% increase compared to the same period last year. On the earnings front, the consensus adjusted EPS estimate stands at $3.22, marking a substantial 90% year-over-year expansion.
The critical metric for shareholders will be artificial intelligence semiconductor performance. Following Q2’s impressive 143% surge that delivered $10.8 billion in AI chip revenue, company leadership has projected roughly $16 billion for the current quarter. This projection translates to over 200% annual growth and nearly 50% sequential improvement.
A significant portion of this expansion stems from Broadcom’s proprietary AI accelerators, designated as XPUs, alongside its Ethernet networking solutions. These technologies enable cloud infrastructure providers to construct massive AI computing systems without complete dependence on standard GPUs.
The company maintains strategic collaborations with industry leaders including Meta, OpenAI, Google, and Anthropic. Its Meta partnership encompasses development of an advanced 2-nanometer AI processor, while the OpenAI alliance involves a substantial 10-gigawatt infrastructure initiative and the recently unveiled JalapeƱo Intelligence Processor.
The stock’s downward trajectory initiated following last quarter’s financial announcement. Despite marginally exceeding Wall Street projections, management maintained its $100 billion AI revenue target for 2027 without increasing the guidance. Market participants had anticipated an upward revision, triggering a 13% single-day decline.
Marvell Partnership With Google Creates Uncertainty
In a development that raised eyebrows, GoogleāBroadcom’s most significant and established AI clientāentered into an agreement with Marvell Technology this past August to engineer supplementary chips for AI infrastructure needs. While Broadcom successfully renewed its TPU chip arrangement with Google in April, the Marvell collaboration introduces a competing supplier into the equation, potentially constraining Broadcom’s future chip revenue prospects.
The TPU collaboration with Google stretches back more than ten years, indicating the fundamental business relationship remains strong. Nevertheless, the Marvell announcement intensified investor apprehension ahead of this week’s earnings disclosure.
Data Center Lease Liability Creates Additional Concern
A recent regulatory filing disclosed that Broadcom might bear responsibility for up to $29 billion in lease commitments should data center tenants experience defaults. This situation stems from a financing vehicle established by Apollo and Blackstone designed to fund data center development utilizing Broadcom’s chip technology.
Critics have characterized this structure as “circular financing,” questioning the authenticity of underlying demand. While Broadcom’s potential exposure represents only a modest portion of total projected capital deployment, the revelation nonetheless unsettled market participants.
On the enterprise software front, VMware continues delivering solid results. Infrastructure Software segment revenue climbed 9% annually to $7.2 billion in the second quarter, with management projecting 31% growth to $8.9 billion for Q3, fueled by robust uptake of VMware Cloud Foundation 9.1.
Broadcom boasts an impressive track record of surpassing earnings forecasts for 21 straight quarters, with an average EPS beat of 2.19% across its most recent four reporting periods.
AVGO currently commands a forward price-to-earnings multiple of approximately 18.9 times next year’s projected earnings, marginally above the S&P 500 average, and carries a Zacks Rank #2 (Buy) rating.
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